Wall St Set To Open Lower As Earnings Of Big Banks Disappoint

U.S. stocks were set to open lower on Thursday as downbeat earnings from big U.S. banks JPMorgan Chase & Co and Morgan Stanley underscored concerns about a sharp economic downturn caused by aggressive monetary policy tightening.

Shares of JPMorgan were 3.2% lower in premarket trading after it reported a bigger-than-expected 28% fall in quarterly profit and suspended share buybacks as it set aside more money to cover potential losses.

Jamie Dimon, chief executive of the largest U.S. bank, flagged a number of concerns including geopolitical tension, high inflation and the "never-before-seen" quantitative tightening as threats to global economic growth.

"The big concern is that the slowdown of the economy and higher inflation are really just the beginning of what investors have been worrying about," said Sam Stovall, chief investment strategist at CFRA.

"We saw the P/E ratios come down pretty dramatically in the first half of this year. And now the question is, did the price decline anticipate an earnings decline? That is what I think is the reaction today."

Morgan Stanley slipped 0.5% after the bank missed quarterly profit estimates as its investment banking unit struggled to cope with a slump in global dealmaking.

Shares of other banks Wells Fargo & Co, Goldman Sachs Group Inc and Citigroup fell between 2.4% and 2.5%.

At 08:58 a.m. ET, Dow e-minis were down 477 points, or 1.55%, S&P 500 e-minis were down 49.25 points, or 1.29%, and Nasdaq 100 e-minis were down 97 points, or 0.82%.

"We expect much of the upcoming reporting season to represent an earnings 'confession' period for chief executive officers as guidance to analysts will likely be adjusted noticeably to the downside," Wells Fargo's senior global market strategist Scott Wren wrote in a note.

As of last Friday, analysts saw aggregate annual S&P earnings growth of 5.7% for the April-to-June period, down from the 6.8% forecast at the beginning of the quarter, according to Refinitiv.

Recession fears have roiled financial markets this year as central banks across the world move to aggressively raise borrowing costs to curb sky-high inflation, pushing Wall Street to its worst first-half performance in decades.

After a robust jobs report last week cemented the case for a 75-basis-point rate hike in July, investors were rattled by hotter-than-expected consumer prices data on Wednesday that pushed traders to bet on an ever bigger full percentage point interest rate hike later this month.

A Labor Department report on Thursday showed that U.S. producer prices increased more than expected in June amid rising costs for energy products, but underlying producer inflation appeared to have peaked.

Another report showed the number of Americans filing new claims for unemployment benefits rose for a second straight week last week.